Franc Smash

Worldwide attention has been centered on the lively behavior of the franc, after it broke through four cents to a new low record in the foreign exchange markets for all time.

The break came just about the time when an increase in the note circulation of the Banque de France of 921 million francs in a single week was announced, bringing up the total note circulation of that institution to the new high record of 40,265 million francs.

Several causes for the break are already discernible. The basic cause is that the French have not really balanced their budget and have financed deficit after deficit by issuing more internal government notes and bonds. This load of debt, which it was hoped would soon be lightened by the receipt of German reparations, at length became top heavy. Speculators began to sell francs "short" in anticipation of a decline. The conservative investor, to avoid losses, sent his balances abroad, and a "flight of the franc" ensued.

Meanwhile a report got about which caused the franc to rally, at least temporarily. It was said that the Government had secured a credit of $50,000,000 from a group of American bankers headed by J. P. Morgan & Co., that a similar credit had been arranged in London. It was even detailed that the loan was in the form of three-months' notes bearing 6% interest. All banks referred inquiring reporters to J. P. Morgan & Co. J. P. M. & Co. refused to comment. It was pointed out that this might mean either that a loan was in process of negotiation or that J. P. M. & Co., did not care to drive the franc into a relapse by denial.